Europe's Stock Exchanges Tackle Needed Integration

Article excerpt

SINCE the new year began, it's been simpler and more
cost-effective for NatWest Securities' customers in London to
invest in firms listed on the Swedish Stock Exchange.

Under the European Union's new investment services directive
(ISD), NatWest brokers are allowed to execute trades in any
publicly held company over an electronic screen, not unlike the
American over-the-counter trading system, without using a local
broker in Stockholm as an intermediary. That means swifter
execution of trades, and only one sales commission to be paid,
instead of two.

This kind of modernization of capital markets is being seen as
critical if European economies are to modernize as they must, and
if they are to create desperately needed jobs.

Investors, especially the all-important institutional investors,
want to be able to get in and out of investments easily. They want
financial reports that let them make apples-to-apples comparisons.
And they want relevant business information about the companies
they invest in. "If they think they're not getting the information
they need, they'll go elsewhere," says J. Paul Horne, chief
international economist at the brokerage house Smith Barney Inc. in
Paris.

It has become commonplace to lament the lack of capital in
Europe for startup businesses, especially in Germany. "But the
problem is not just start ups," Mr. Horne says. The capital issue
is "probably most important for medium and big companies" that are
constrained from expanding.

IN any case, the new year has brought some important changes.
The ISD, which lets brokers regulated in one country trade shares
directly on the stock exchanges of other member countries, is one
of these. Another is a new cooperative agreement among four of the
eight German stock exchanges. To be phased in over 1996, the
agreement will mean, among other things, common opening and closing
prices for individual stocks, rather than one price in Frankfurt,
say, and another in Munich.

Meanwhile, on Jan. 4 the London Stock Exchange abruptly
dismissed Michael Lawrence as chief executive, showing that the
road to modernization can be as bumpy in capital markets as in any
other industry. The exchange is considering reforms in how shares
of its 350 top stocks are traded.

Mr. Lawrence lost the confidence of the exchange's member firms
by favoring an order-driven system, as opposed to the current
"marketmaking" system in which financial firms bring buyers and
sellers together. …